Yahoo rises on reorganization plan while techs drop

SAN FRANCISCO (MarketWatch) -- The tech sector sank Thursday, after the rally in chip shares lost steam and many major software makers staggered into the red.

But Yahoo Inc.
YHOO, +2.20%
rose 4% to close at $12.98 based on speculation of a possible deal with Microsoft Corp.
MSFT, -0.59%
as well as on a major reorganization under new Chief Executive Carol Bartz.

The sector also saw shares of International Business Machines Corp.
IBM, +0.35%
rise 3.6% to close at $88.97 as Big Blue reaffirmed its 2009 earnings outlook. See story on IBM.

However, Dell Inc.
DELL
lost 1.8% to close at $8.21 as the computer maker prepared to report fourth-quarter results. See earnings preview.

Meanwhile, a bearish note on chips cut short a rally in semiconductor stocks. After rising more than 2%, the Philadelphia Semiconductor Index
SOX, +0.82%
fell 1.8%.

The retreat pushed the Nasdaq Composite Index
COMP, +0.44%
into negative territory, and was down 2.4% to close at 1,391.5 points. The Morgan Stanley High Tech 35 Index
MSH, +0.31%
was also off 1.65%.

Yahoo
YHOO, +2.20%
was the session's early gainer, following comments from both the beleaguered Web portal and Microsoft suggesting a potential transaction involving Yahoo's search-ad business. On-and-off merger negotiations between the two titans collapsed last year.

Analyst Sandeep Aggarwal of Collins Stewart, for one, thinks the potential exists for a deal, in light of comments from both companies. "We continue to believe that a Microsoft-Yahoo search deal is very likely and appears to be a near-term event," he wrote in a note.

The company also unveiled major changes under Bartz, including the departure of its chief financial officer. Read more.

New chatter of a deal with Yahoo sent Microsoft's shares down 3.2%.

Shares of other software makers also took a hit, pulling back after Salesforce.com Inc.
CRM, +0.11%
issued a sales forecast slightly below consensus estimates.

Salesforce.com managed to bounce back late afternoon, gaining 1.6%, but other software makers including VMware Inc.
VMW, -0.51%
and Adobe Systems Inc.
ADBE, +0.14%
were in the red.

"Macroeconomic headwinds are getting very strong," analyst Trip Chowdhry of Global Equities Research wrote in a note. "Industry-wide layoffs will impact Salesforce.com subscription renewals."

Initially, the semiconductor sector continued to defy gravity, amid talk that a chip-industry turnaround is premature. On Wednesday, Gartner Inc. and International Data Corp. both projected a steep drop in sales for chips this year.

Echoing the concerns of other analysts, analyst Alex Gauna of JMP Securities said the gains appear to be "discounting a recovery that we believe is both premature to dial into forecasts and likely to ultimately disappoint when it arrives."

"In addition to macroeconomic adversity, the industry is also lacking in meaningful product-cycle catalysts to absorb excess inventories and manufacturing capacity likely to persist well into the second half of 2009," Gauna wrote in a research note.

However, Wachovia analyst David Wong offered a more upbeat view in a research note, saying: "We think that the general trend for semiconductor shipments is likely to show weakness through the March 2009 quarter.

"However, given what we view to be excellent management of inventory in the supply chain mentioned, we think there could well be some signs of improvement in semiconductor demand at some point in the next few months."

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information. Intraday data
delayed per exchange requirements. S&P/Dow Jones Indices (SM) from Dow Jones & Company, Inc.
All quotes are in local exchange time. Real time last sale data provided by NASDAQ. More
information on NASDAQ traded symbols and their current financial status. Intraday
data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. S&P/Dow Jones Indices (SM)
from Dow Jones & Company, Inc. SEHK intraday data is provided by SIX Financial Information and is
at least 60-minutes delayed. All quotes are in local exchange time.